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How does demonetising 500 and 1000 rupee notes lower corruption. The answer is probably quite straight forward but I canne get ma head round it
The sudden withdrawal and replacement of the notes doesn't really get rid of the petty daily corruption that most people face at government offices, traffic cops and the like but it does have a major impact on the other forms of corruption.
People hoard bank notes in order to escape having to declare their income and pay tax on it which is called "black money" in India. They find that the notes are now worthless. They either have to get rid of those notes or deposit it into bank accounts so it enters banking system.
If large deposits are made then it makes the tax authorities suspicious and it is investigated which could lead to fines of 200% on the tax that has to be paid back.
Several raids have been conducted by the Income Tax Department and the Enforcement Directorate which have unearthed large stacks of notes both legitimate and counterfeit.
Several billions dollars of previously unaccounted wealth has officially entered the banking system.
Politicians and their political parties too have not been spared since the Enforcement Directorate has carried out raids on them and found bundles of notes. Most political parties have been affected by this including the Prime Minister's own party.
Some of the other effects of this move is that property prices have taken a hit since the property market was being buoyed by this "black money". Often people would pay half of the asking price for property and land by bundles of cash so there was no official record and it didn't have to be declared on official documents meaning stamp duty could be evaded.
Terrorist groups have also taken a massive hit. Left wing extremists who are called Naxalites or Maoists have found their source of finance drying up since they too hoarded the withdrawn notes. Several of them have even handed themselves in to the authorities since they cannot carry out their activities.
In the state of Jammu and Kashmir too the activities by militants has reduced dramatically because they have also found their finance drying up.
Both the Maoists and the Kashmiri militants have great trouble exchanging the withdrawn notes for the new legal tender due to the strict rules and regulations imposed by the govt and banks.
On the other side though common people are faced great hardships in exchanging the notes and now have a lot of trouble in obtaining cash from ATMs so the government is now giving incentives for people to go cashless and use digital payments.
In my view it was a good idea but some of the execution has been terrible.